Hewlett-Packard Said to Be Freezing Pay to Cut Costs (Update3)
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By Connie Guglielmo

Dec. 4 (Bloomberg) -- Hewlett-Packard Co., the world’s largest personal-computer maker, is freezing salaries as part of Chief Executive Officer Mark Hurd’s efforts to contain costs, people familiar with the plan said.

Employees have been notified by e-mail that they won’t receive a salary increase in fiscal 2009, which began in November, according to two people who asked not to be identified because the message was confidential. The only exceptions will be in countries where pay freezes are illegal, the two people said.

Hurd has cut jobs, closed offices and merged data centers to lift profit, even as he expands through acquisitions. Hewlett- Packard also is limiting travel, curtailing hiring and eliminating “favorite science projects” to save on research costs in 2009, Chief Financial Officer Cathie Lesjak said last month on a conference call.

Hewlett-Packard, which has 320,000 employees, declined to confirm the salary freeze. “In this difficult macroeconomic environment, we believe it is prudent and responsible to reduce costs where possible,” said spokeswoman Emma McCulloch. “H-P has a longstanding and disciplined approach to managing costs in order to invest in the company’s growth.”

Hewlett-Packard, based in Palo Alto, California, fell $1.43 to $33.39 at 4 p.m. in New York Stock Exchange trading. The shares have dropped 34 percent this year.

Hurd, who became CEO in 2005, received $25.3 million in total compensation in fiscal 2007.

Tighter Budgets

Worldwide technology spending growth will slow to 2.6 percent next year, less than half the rate initially predicted, research firm IDC said last month. Growth in the U.S. will decelerate to 0.9 percent, the Framingham, Massachusetts-based company estimated.

The company also said it will only hire workers for “revenue-generating positions,” reduce spending on contractors and limit travel to customer-related activities, according to the e-mail, a copy of which was obtained by Bloomberg News.

“These are difficult actions, but necessary in the current environment,” said the message, which was distributed by Hewlett-Packard’s division chiefs.

Hewlett-Packard’s PC sales, which account for about a third of revenue, rose 10 percent to $11.2 billion last quarter, beating some estimates. Demand for notebooks offset declining printer sales in a shrinking economy. The company is the world’s top printer maker and also sells software, server computers, storage devices and services.

Profit Forecast

Last month, Hurd forecast a rise in profit to as much as $4.03 a share this fiscal year, more than the $3.89 anticipated by analysts in a Bloomberg survey. Investors took that as a sign the company is prepared to squeeze more profit out of sales as customers reduce spending.

“It will be a challenging environment and we’re planning on such,” Hurd, 51, said on a Nov. 23 conference call with reporters. “We can only control the things we can control, which is our cost structure and the competitiveness of our products.”

This week, Hewlett-Packard raised $2 billion in debt to help fund its $13.2 billion purchase of Electronic Data Systems Corp. It acquired that company in August to expand its services business.